CASE ANALYSIS:

Pacific National Bank

In partial fulfillment of the

Requirements in MSC530M
Quantitative Methods

By:
GROUP 3
Marjorie Carreon
Rochelle Castillo
Ryan Colao
Ann Margareth Joquico
Kim Mirasol
Mary Rose Pacis
Kristine Patron
Benedict Sandejas

Submitted to:
Mr. Enrico Cordoba

April 15, 2016

 SYNOPSIS

Pacific National Bank (PNB), a medium-sized bank with 21 branches, has been relying
on outside vendors to operate their automatic teller machines. This makes 90% of their
customers use non-Pacific Credit cards for cash advances, therefore Pacific does not
make much profit from this service. Pacific National Bank through its Operations Vice
President Maria Perez, would like to offer a broader mix of banking services to its
clientele by operating its own ATM's tied to their data-processing network.

The installation of ATM would do the following:

It would provide essential banking services at all hours (24 hours ATM).
It would increase its market share by targeting those who are inconvenienced by the
normal banking hours.
It would minimize the cost for human tellers.
It would lessen the waiting time for over-the-counter transactions as customers would
have the convenience of using ATMs at the more preferred time.

POINT OF VIEW:
MARIA PEREZ, Operations Vice President

STATEMENT OF THE PROBLEM:

How can Ms Perez attract customers and at the same time reduce costs?

OBJECTIVES:

1. To be able to utilize resources: reduce customer waiting time and minimize cost of
operational expenses
a. to determine the minimum number of human tellers needed in each station as
well as the mean customer waiting time
b. to determine the average queuing system necessary to service the banks
customers both for human tellers and ATMs.
c. to be able to determine the cost of the banks operation with or without ATM
d. to determine the minimum number of tellers required with an ATM at the least
amount of cost per period.
2. To be able for PNB to provide banking services at all hours
ASSUMPTIONS

1. We will only include all transactions that occur between 10AM to 3PM from Monday
to Thursday and from 10AM to 6PM on Fridays.
2. We will only consider the addition of only 1 ATM unit for Pacific National
Bank
3. Costs involved in the purchase and operation of the PNB ATM will not be
included in the cost comparison.
4. For the estimation of the ATM use, we will consider the recommendation s of the
supplier for the ATM equipment

5. P0.50 Queuing cost only applies to waiting time on tellers, not on ATM.

AREAS FOR CONSIDERATION

1. The banks current setup only has human tellers

The bank opens at 10 A.M. and closes at 3 P.M., except on Friday, when it closes
at 6 P.M.
Customers arrive randomly at a stable mean rate Poisson process is Valid
Mean time required to complete customer transaction 2 mins
Individual service time is exponential
For every minute a customer is waiting in line, the bank loses P0.50.

2. The industry consensus is that the ATMs appeal to customers because it

minimizes the amount of waiting time.
ATM supplier claims that based on his/her experience with other banks, there is a
30% diversion on regular business of teller to ATM. There is also a 2% increase in
overall traffic directed towards the ATM. 50% of this traffic is during normal operating
hours.
ATM busy period arrivals Single Poisson process
Mean Service time is minute
Individual service time is exponential

FRAMEWORK
 QUEUING THEORY

Components in the Queue

1. Arrivals or input
2. Queue discipline
3. Service facility (server)

In order to determine the queuing statistics, the following notations would be used:

mean service rate (number of calling units served per unit of time)
mean arrival rate (number of calling units per unit of time)
1/ mean service time for a calling unit
s number of parallel (equivalent) service facilities in the system
P(n) probability of having n units in the system
server utilization factor (that is, the proportion of time the server can be
expected to be busy)
expected or mean length of the queue (number of calling units in the
Lq queue)
expected number of calling units in the system (number in the queue plus
Ls number being served)
Wq expected or mean time spent waiting in line
expected or mean time spent in the system (including waiting time and
Ws service time)

Given the banks current setup, the formula to be used for the use of human
tellers shall be as follows:

Multi-Channel Queuing Model:

 1. The number of arrivals per unit is described by Poission distribution.
2. Service times are described by an exponential distribution
3. Queue discipline is first come first served.
4. The calling population is finite
5. There are multiple channels
6. The mean arrival rate is less than the mean service rate
7. The waiting space available for customers is finite

1
P ( 0 )= s 1 n s 1
( / ) ( / )
n ! + s ! 1 s
( )
n=0

=
s

P(0)( /)s
L q=
s !(1 )2

Ls=Lq +
( / )

Lq
W q=

1
W s =W q +

As for the current setup/consensus for the ATM, the below formula would be followed:

Single Channel Queing Model:

1. The number of arrivals per unit is described by Poission distribution.
2. Service times are described by an exponential distribution
3. Queue discipline is first come first served.
4. The calling population is finite
5. There is ONE channel
6. The mean arrival rate is less than the mean service rate
7. The waiting space available for customers is finite

P ( 0 )=1

1
Ws=

W q=
( )

Ls =

P(0)( / )s
Lq =
s !(1 )2

Other concepts:
Relationship between Waiting Costs and Service Costs
Cost of waiting time

Increased Service
Cost of of providing service

Increased Service
ALTERNATIVE COURSES OF ACTION

** All of these are used in all ACAs

Notations:
s number of parallel (equivalent) service facilities in the system (no. of tellers)
server utilization factor (that is, the proportion of time the server can be expected to
be busy)
P(0) probability of having 0 units in the system (%)
Lq expected or mean length of the queue (number of calling units in the queue) (no.
of customers)
Ls expected number of calling units in the system (number in the queue plus number
being served) (no. of customers)
Wq expected or mean time spent waiting in line (in hours per customer)
Ws expected or mean time spent in the system (including waiting time and service
time) (in hours per customer)
DQC Daily Queuing Cost (in Pesos)
WQC Weekly Queuing Cost (in Pesos)
DMC Daily Manpower Cost (in Pesos)
WMC Weekly Manpower Cost (in Pesos)
WTOC Weekly Teller Operation Cost (in Pesos)

Given:
Queuing cost = P0.50 per minute = P30.00 per hour
Labor cost = P50.00 per hour

Additional Formula Used:

P 30.00 hours customers
DQC=
hour (
Wq
customer ) (

hour )
number of hoursa period

WQC =DQC 5
 P 50.00
DMC= s ( number of tellers )
hour
WMC=DQC 5 (Note: Only for Periods 1-3)
WTOC=WQC+WMC

ACA 1: Only use the minimum number of tellers needed to operate the bank and
dont invest in an ATM machine.

Based on our figures, the minimum number of tellers for the 10AM to 12NN
banking period is 3. This results in an expected queue waiting time of 3.60 minutes.
The use of 3 tellers resulted in a queue waiting time of approximately 3.6
minutes. This resulted in an overall WQC of 1393.78 pesos (155 customers * 3.60
minutes * 5 days * P0.50). Adding this to labor cost of 1500 (3 tellers x 2 hours x 5 days
x P50) results to a total weekly expense of P2893.78.
 Based on our figures, the minimum number of tellers for the 12NN to 1PM
banking period is 9. This results in an expected queue waiting time of 1.44 minutes.
The use of 9 tellers resulted in a queue waiting time of approximately 1.44
minutes. This resulted in an overall WQC of 873.85 pesos (242 customers * 1.44
minutes * 5 days * P0.50). Adding this to labor cost of 2250 (9 tellers x 1 hours x 5 days
x P50) results to a total weekly expense of P3123.85.

Based on our figures, the minimum number of tellers for the 1PM to 3 PM
banking period is 5. This results in an expected queue waiting time of 11.01 minutes.
The use of 5 tellers resulted in a queue waiting time of approximately 11.01
minutes. This resulted in an overall WQC of 7984.74 pesos (290 customers * 11.013
minutes * 5 days * P0.50). Adding this to labor cost of 2500 (5 tellers x 2 hours x 5 days
x P50) results to a total weekly expense of P10484.74.
 Based on our figures, the minimum number of tellers for the 3PM to 6 PM
banking period is 7. This results in an expected queue waiting time of 1.58 minutes.
The use of 7 tellers resulted in a queue waiting time of approximately 1.58190
minutes. This resulted in an overall WQC of 438.19 pesos (554 customers * 1.58190
minutes * 1 days * P0.50). Adding this to labor cost of 1050 (7 tellers x 3 hours x 1 days
x P50) results to a total weekly expense of P1488.19.

If we use the minimum number of tellers for each of our operating periods, our
total expenses in terms of labor and queuing will be P17,990.56.

ACA 2: Determine the number of tellers required which will lead to the most
savings without getting an ATM machine.
 Based on our figures, the minimum number of tellers for the 10AM to 12NN
banking period is 3. This results in an expected queue waiting time of 3.60 minutes. If
we add another teller for this period, it will result in a new expected queuing waiting time
of 0.49 minutes.
The use of 4 tellers instead of 3 tellers resulted in a queue waiting time of
approximately .49206 minutes. This resulted in an overall WQC of 190.67191 pesos
(155 customers * 0.49206 minutes * 5 days * P0.50). Adding this to labor cost of 2000 (4
tellers x 2 hours x 5 days x P50) results to a total weekly expense of P2190.67.
 Based on our figures, the minimum number of tellers for the 12NN to 1PM
banking period is 9. This results in an expected queue waiting time of 1.44 minutes. If
we add another teller for this period, it will result in a new expected queuing waiting time
of 0.44 minutes.
The use of 10 tellers instead of 9 tellers resulted in a queue waiting time of
approximately 0.43 minutes. This resulted in an overall WQC of 265.5029 pesos (242
customers * 0.43 minutes * 5 days * P0.50). Adding this to labor cost of 2500 (10 tellers
x 1 hours x 5 days x P50) results to a total weekly expense of P2765.50.
 Based on our figures, the minimum number of tellers for the 1PM to 3 PM
banking period is 5. This results in an expected queue waiting time of 11.01 minutes. If
we add another teller for this period, it will result in a new expected queuing waiting time
of 0.91 minutes.
The use of 6 tellers instead of 5 tellers resulted in a queue waiting time of
approximately 0.907 minutes. This resulted in an overall WQC of 657.58 pesos (290
customers * 0.907 minutes * 5 days * P0.50). Adding this to labor cost of 3000 (6 tellers
x 2 hours x 5 days x P50) results to a total weekly expense of P3657.58.

Based on our figures, the minimum number of tellers for the 3PM to 6 PM
banking period is 7. This results in an expected queue waiting time of 1.58 minutes. If
we add another teller for this period, it will result in a new expected queuing waiting time
of 0.43 minutes.
The use of 8 tellers instead of 7 tellers resulted in a queue waiting time of
approximately 1.58190 minutes. This resulted in an overall WQC of 438.19 pesos (554
customers * 1.58190 minutes * 1 days * P0.50). Adding this to labor cost of 1200 (8
tellers x 3 hours x 1 days x P50) results to a total weekly expense of P1318.49.

If we choose to add an additional teller, it may or may not decrease operating

costs. Given our findings in this case, if we add one more teller per period, our total
expenses in terms of labor and queuing will be P9,932.24.

ACA 3: Determine the number of tellers required which will lead to the most
savings with getting an ATM.

The new values of the customers are affected once ATM is installed. Here are the
new values:

Excerpt from the problem:

The supplier of the ATM equipment claims that other banks of comparable
size have experienced a 30% diversion of regular business away from
human tellers to the ATM, which produced a further 2% expansion
beyond the previous level of overall client transactions all
absorbed by the ATM, half of it outside regular banking hours. The
 supplier also maintains that the ATM traffic is fairly uniform, except
between 11 P.M. and 6 A.M., when it is negligible.

Based on our figures, the minimum number of tellers for the 10AM to 12NN
banking period is 3 even if the mean service time was increased by 2.5 minutes and the
mean length of queue of customers was decreased. This results in an expected queue
waiting time of 1.94 minutes. If we add another teller for this period, it will result in a new
expected queuing waiting time of 0.35 minutes.
The use of 3 tellers resulted in a queue waiting time of approximately 1.94
minutes. This resulted in an overall WQC of 525.5188 pesos (108.5 customers * 1.94
minutes * 5 days * P0.50). Adding this to labor cost of 1500 (3 tellers x 2 hours x 5 days
x P50) results to a total weekly expense of P2025.52.
 Based on our figures, the minimum number of tellers for the 12NN to 1PM
banking period was reduced to 8 from 9. This is a result of the decrease in the mean
length of queue of customers and the increase in the service time to 2.5 minutes. This
results in an expected queue waiting time of 1.74 minutes. If we add another teller for
this period, it will result in a new expected queuing waiting time of 0.51 minutes.
The use of 9 tellers instead of 8 tellers resulted in a queue waiting time of
approximately 1.74 minutes. This resulted in an overall WQC of 217.2416 pesos (169.4
customers * 1.74 minutes * 5 days * P0.50). Adding this to labor cost of 2250 (9 tellers x
1 hours x 5 days x P50) results to a total weekly expense of P2467.24.
 Based on our figures, the minimum number of tellers for the 1PM to 3 PM
banking period is still 5 even if the mean service time was increased to 2.5 minutes and
the mean length of queue of customers was decreased. This results in an expected
queue waiting time of 2.09 minutes. If we add another teller for this period, it will result
in a new expected queuing waiting time of 0.49 minutes.
The use of 6 tellers instead of 5 tellers resulted in a queue waiting time of
approximately 0.49 minutes. This resulted in an overall WQC of 246.35317 pesos (203
customers * 0.49 minutes * 5 days * P0.50). Adding this to labor cost of 3000 (6 tellers x
2 hours x 5 days x P50) results to a total weekly expense of P3246.35.
 Based on our figures, the minimum number of tellers for the 3PM to 6 PM
banking period is reduced from 7 to 6. This is a result of the decrease in the mean
length of queue of customers and the increase in the service time to 2.5 minutes. This
results in an expected queue waiting time of 2.99 minutes. If we add another teller for
this period, it will result in a new expected queuing waiting time of 0.66 minutes.
The use of 7 tellers instead of 6 tellers resulted in a queue waiting time of
approximately 0.66 minutes. This resulted in an overall WQC of 127.3811 pesos (387.8
customers * 0.66 minutes * 1 days * P0.50). Adding this to labor cost of 1050 (7 tellers x
3 hours x 1 days x P50) results to a total weekly expense of P1177.38.

Computation for 1 ATM

 The use of 1 ATM resulted in a maximum queuing waiting time of 2.387 minutes,
in Period 2 and a minimum queuing time of 0.1801 minutes in Period 1.

The total cost of operations, exclusive of ATM related costs, is P8916.49

Cost Comparison for 3 ACAs

If you compare all 3 scenarios, the scenario with the least cost, exclusive of ATM
operational costs, is the scenario where an ATM exist, which resulted in a weekly cost of
P8916.49.
RECOMMENDATION

Our recommendation is ACA 3 which provides the best opportunities for Pacific National
Bank. Although all 3 ACAs allowed the determination of the minimum number of tellers,
ACA 1 did not do its best to reduce queuing losses, while ACA 2 and ACA 3 did.

One of the important goals of the bank is to offer services outside of banking hours.
Only ACA 3 would do that since the ATM can operate after office hours. For this reason,
ACA 3 is the recommended action for this case.